India intensifies its AI ambitions: Implementing a 20-year tax exemption for global hyperscale cloud service providers

The Indian government recently announced that it will provide tax exemptions for up to 20 years to hyperscale cloud service providers using local data centers to serve global customers, aiming to bring AI-driven critical businesses to India.

This tax incentive is expected to make Indian data centers more competitive in attracting international investment compared to traditional hubs like Singapore, the UAE, and Ireland. Under current rules, profits of foreign cloud service giants in Indian data centers are considered as permanent establishment income, subject to a corporate income tax of 35% and additional fees. The new policy will allow relevant companies to achieve complete tax exemption on profits until 2047.

Indian Finance Minister Nirmala Sitharaman clearly stated in her budget speech that this exemption will "promote investment in data centers." Prior to the policy announcement, there were signs in the industry: Microsoft and Amazon committed over $50 billion to invest in India's cloud and AI infrastructure within 24 hours last December, and Google also partnered with AdaniConneX to launch a $15 billion data center project in southern India.

Analysts pointed out that this move is a strategic initiative for India to seek a more critical position in the global AI competition. Although the country currently has shortcomings in foundational models, advanced chip manufacturing, and large-scale data center capacity, experts believe that this targeted incentive policy is expected to replicate the success of India's IT service outsourcing industry in the early 2000s, bringing structural changes to the country's cloud and data center ecosystem.

Tax Exemption Clears Major Investment Barrier

Industry experts generally believe that the 20-year tax exemption provided to hyperscale cloud service providers will significantly enhance India's competitiveness as a global cloud computing hub.

Riaz Thingna, a tax partner at Grant Thornton Bharat, pointed out that the new policy will make India a "base with much lower global workload costs," thereby "significantly increasing" the demand for hyperscale cloud service providers. Kumarmanglam Vijay, head of direct tax business at JSA Advocates and Solicitors, further explained that previously, foreign cloud service providers faced a comprehensive tax burden of about 35% on profits in Indian data centers, while the new regulation directly reduces this burden to zero, continuing until 2047.

Anshuman Magazine, CEO of CBRE India, Southeast Asia, the Middle East, and Africa, commented that this move eliminates "the biggest friction point for global hyperscale cloud service providers entering India," and the clear return period of 20 years will drive "significant increases in global capital inflow" in this field.

Thingna concluded that this move marks India's strategic transformation from a purely "consumer market" to a "global hub for cloud computing and AI computing." Previously, foreign cloud service providers faced certain corporate income tax risks due to constituting a "significant economic presence" in India, and the new policy fundamentally changes this business logic.

Tech Giants as Major Beneficiaries

Industry experts analyzed that the newly introduced tax exemption policy in India is expected to significantly benefit local IT and cloud service giants (such as Infosys, Wipro, TCS, HCL Tech, Jio) as well as local data center developers Among them, the $15 billion data center project in collaboration between Google and AdaniConneX is seen as one of the main beneficiaries of this policy. Previously, Microsoft and Amazon announced over $50 billion in investments in India's cloud and AI infrastructure within 24 hours last December, although details about their local partners have not been disclosed.

Raju Vegesna, Chairman of Indian data center developer Sify Technologies, commented that the tax exemptions have released a positive signal for "sustained, cost-effective capacity building." So far, Google and Microsoft have not responded immediately to related inquiries, while Amazon Web Services (AWS) declined to comment.

Rapid Market Expansion

India's data center market is experiencing explosive growth opportunities. Its existing capacity is approximately 1.2 gigawatts, but it is expected to grow by over 150% in the next five years, surpassing 3 gigawatts. For reference, the total global data center capacity is currently 103 gigawatts, and driven by strong AI demand, it is expected to double to 200 gigawatts by 2030. Since 2025, global investments flowing into this field have exceeded $61 billion.

Market analysis suggests that India will significantly benefit from the structural transformation of the data center market in the Asia-Pacific region. As traditional hub markets like Japan, Australia, and Singapore mature, land resource constraints, exemplified by Singapore, are limiting their ability to deploy new facilities on a large scale, creating a strategic window for India to accommodate overflow demand.

Cost Advantages Highlighted

India has significant resource advantages in attracting data center investments. Its vast land supply provides ample space for large-scale development, while lower electricity costs compared to European hubs and rapidly growing renewable energy capacity together form a key economic advantage.

S. Anjani Kumar, a partner at Deloitte India, pointed out that the new tax incentives will bring about transformative effects similar to those seen in the early 2000s IT services incentives for India's cloud and data center ecosystem, expected to "catalyze large-scale global investments, expand export revenues, and drive long-term employment and capacity building."

Experts analyze that layering tax exemptions on already low infrastructure costs will make India more cost-attractive for hyperscale cloud service providers compared to traditional hubs like Singapore, the UAE, and Ireland.

Additionally, India is systematically advancing its AI ambitions. Ashwini Vaishnaw, Minister of Electronics and Information Technology, recently stated in Davos that India is making "very good progress" across five AI architecture layers: applications, models, chips, infrastructure, and energy. In addition to attracting cloud giants, the government is also incentivizing semiconductor design and manufacturing companies to establish operations, aiming to build a more complete industrial ecosystem